Hecla Mining Company - Q4 2023

Transcript

Operator (participant)

Good morning. My name is Jeannie, and I will be your conference operator today. I would like to welcome you to the Q4 2023 Hecla Mining Company Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question during that time, simply press * followed by the number 1 on your telephone keypad. If you would like to withdraw your question, press * 1 again. Thank you. I would now like to turn the conference over to Anvita Patil. You may begin your conference.

Anvita Patil (VP Finance and Treasurer)

Good morning, Jeannie, and thank you all for joining us for Hecla's 4th Quarter 2023 Financial and Operations Results Conference Call. I'm Anvita Patil, Hecla's Vice President of Investor Relations and Treasurer. Our financial results news release that was issued yesterday, along with today's presentation, are available on Hecla's website. On today's call, we have Phil Baker, Hecla's President and Chief Executive Officer. Russell Lawlar, Hecla's Senior Vice President and Chief Financial Officer. And Carlos Aguiar, Hecla's Vice President of Operations. Phil and Russell will make most of the presentation. Carlos, who's at Keno Hill, will make a couple of comments. All of them will be available to answer questions. Any forward-looking statements made today by the management team come under the Private Securities Litigation Reform Act and involve risks, as shown on slide 2, in our earnings release and in our 10-K and 10-Q filings with the SEC.

These and other risks could cause results to differ from those projected in the forward-looking statements. Non-GAAP measures cited in this call and related slides are reconciled in the slides or the news release. I want to remind you, if you would like to have a call with the management, you can do so by using the link under the section Virtual Investor Event in our earnings release that was issued yesterday. I will now pass the call to Phil.

Philips S. Baker (Ex-President and CEO)

Thanks, Anvita. Good morning, everyone. Thanks for joining our call. I'm going to start on slide 3. 2023 was a year that was marked by wins in the face of challenges. Some of the challenges were expected, some not. Let me first start with the successes we achieved. We reported the second-highest reserves in our history. Our silver reserves have increased almost 40% over the past 10 years. We've accomplished this by not only replacing 130 million ounces of silver production but adding 65 million ounces through the drill bit, primarily at the Lucky Friday and Greens Creek, and most recently by our acquisition of Keno Hill. We've also had a successful year in exploration with some spectacular results at Keno and Greens Creek. We recorded our second-highest ever in silver production, and this was achieved despite Lucky Friday not being in production for five months.

Both Greens Creek and Lucky Friday recorded their lowest all-injury frequency rate of all time. We continue to be rewarded for the innovative culture we've created at our long legacy of 133 years. We received a patent on the underhand closed-bench mining method. Now, in terms of challenges, this year was really marked by three events: the unexpected fire at the Lucky Friday, our decision to pivot to a surface-only operation at Casa, and to prioritize safety over production at Keno, which has resulted in slower-than-expected ramp-up of the mine. Now, the Lucky Friday is already back in production, and we expect to ramp up full production by the end of the first quarter. Our decision in late August to transform Casa to a full open-pit operation by mid-2024 was a recognition that we needed radical change.

And we prioritize margin over volume, and our execution of this strategy is already yielding results. At Keno Hill, exploration drilling has highlighted the potential and the opportunity at this mine. And while our ramp-up at Keno Hill has gone slower than expected, we firmly believe that by focusing on safety and the environment and getting the mine to Hecla standards is critical if we're going to be successful and provide that long-term value that Keno has the potential to provide.

Now, we've navigated through the challenges of 2023, and we enter 2024 with four operating mines that will give us significant growth over the next three years. So I'm going to talk about exploration and operations after Russell talks about the financial and technical reports, and Carlos makes a few comments. Russell.

Russell Lawlar (SVP and CFO)

Thanks, Phil. I'll start on slide 5. By several measures, 2023 was a very good year. We generated $720 million in revenue. Silver contributed 39% of our revenue, which is more than any other metal, demonstrating Hecla as a true silver company. We continue to have very strong margins from our silver operations, with a margin of 50% of the average realized price of silver for the year. As expected and as we reported in the last quarterly call, we did see our net leverage ratio tick up from 2.2 times last quarter to 2.6 times this quarter. This was primarily due to Lucky Friday not being in production for the last five months of the year. Our goal remains to manage the net leverage ratio to be less than two times.

I'll now turn to slide 6 to discuss the company's priorities with its free cash flow as well as liquidity. On the previous slide, I mentioned the strong margins we see at our silver operations. These margins equate to significant free cash flows. With 12 months of production at Greens Creek and six-plus months at Lucky Friday, these operations generated $155 million in free cash flow. With this cash flow and using our balance sheet, we've made some strategic investments for production growth: the $64 million investment at both Keno Hill and Casa Berardi. In 2024, we anticipate seeing strong free cash flow generation from Lucky Friday in Greens Creek, relatively small investments at Keno and Casa, as well as we expect $50 million from the insurance on the Lucky Friday fire.

Our priorities will be continued investment in the long-term production growth of our assets, which include development and exploration at all of our mines, but we'll also be prioritizing delevering our revolver debt. We have full access to our revolver and can access the accordion if necessary. We expect to have adequate sources of cash flow to not only finance our production growth but also reduce the revolver debt.

Our belief is revolvers are meant to provide liquidity when needed, which ours has, but are best undrawn. As we turn to the next couple of slides, I'll walk through some of the highlights of the technical reports. On slide 7 is the summary of the technical report for Keno Hill. This report confirms the value which we've had the opportunity to capture at Keno Hill.

The mine projects to have 55 million ounces of silver in reserves at a reserve grade of more than 26 ounces per ton, with an expected reserve life of 11 years and an undiscounted cash flow of $420 million. After-tax cash flow is discounted at 5%, is just over $300 million at $22 silver. This report demonstrates the value of the reserves at Keno Hill, which is only partially why we made the strategic acquisition.

Phil will speak to this later in the presentation, but the value that we expect to be added at Keno Hill through the drill bit and our exploration success confirms the significant exploration potential. Turning to slide 8, we've owned the Casa Berardi mine for more than a decade, and it's been a good mine over that time.

However, when we acquired it back in 2013, we realized then that there was the potential for significant value in the open pits, which were anticipated to start production later in the mine life. We see that value crystallizing as we work through the 160 Pit and move our way toward the West Mine Crown Pillar and Principal Pits, where we anticipate seeing this mine generate substantial free cash flows.

However, it's not all investment in the property until then. Based on this report, we anticipate seeing the cash flow from the property be slightly negative this year, turn positive next, and be significant in 2026, which should return a large portion of our investment of the past couple of years, prior to taking a production pause while accommodating a permitting time frame for the higher-grade pits.

In 2027, we expect to process the stockpile, followed by a production gap of three years when the higher-grade pits start production. The revised Technical Report anticipates a mine life of 14 years, returning an undiscounted cash flow of nearly $600 million and a discounted cash flow of almost $350 million, which demonstrates the value this mine brings to the Hecla portfolio. Turn to slide 9, and I'll turn the call to Carlos.

Carlos Aguiar (SEVP, COO)

Thanks, Russell. I will make only a few comments since I'm outside and remote from Phil and Russell. First, on safety, we have a strong overall safety record. Off of what the mines inspected by MSHA have done, Greens Creek's all-injury frequency rate was 0.29 and Lucky Friday 0.66, both the lowest in their history. Casa Berardi was not where it should be but had lots of changes.

Keno's safety was unacceptable. For all the operations, we have started a safety program that is focusing more on leading indicators like near-misses, risk assessments, interactions, and inspections. We expect to make all our operations safer from this year. Our four operations started this year strong. Lucky Friday, we started as planned in the first week of January. Keno Hill is safer and therefore is beginning to ramp up faster.

Greens Creek got the weather events behind it, and Casa Berardi continued the good performance of the last few months. What a difference we will have this year by having all four properties operational. With that, I will pass it on to Phil, starting on slide 10.

Philips S. Baker (Ex-President and CEO)

Thanks, Carlos. We've labeled Greens Creek on this slide the foundation of Hecla's future, since as we grow, Greens Creek will continue to be the foundation, providing stability and consistency in our cash flow and production well into the future. And the mine reported a strong year, which could have been even better without the weather reducing 12 days of production in the fourth quarter. Now, we expect the mine to have another consistent year in 2024, with production expected to be about 8.8-9.2 million ounces, so a little less silver and also produce a little less gold due to mine sequencing, where we're mining lower grades. But we will produce a bit higher zinc. The zinc grades are a bit higher. So the cost per ounce will be higher.

We also are increasing the capital, replacing some mobile and mill equipment, as risk mitigation of operating at around 2,600 tons per day becomes particularly important. At this higher throughput, we really need everything to be more reliable because there's not really an opportunity to catch up if we have an upset.

And like we've done at Greens Creek for 30 years, we still see opportunities to have lower costs, these investments to allow us to have lower costs, and also increase recoveries with some of the investments. Slide 11 shows our planned 2024 surface and underground exploration programs, which will be testing multiple targets with significant potential to add resources. When Greens Creek started, the mine had a mine plan of 7 years. And now, 37 years later, the mine plan is 14 years.

This past year's underground exploration had good success in seven of the eight zones drilled, with four of those zones in the fourth quarter. So we're very excited about this year's program that coordinates the drilling underground with the surface drilling in the East Ore, the Upper Plate, and Gallagher. We will also drill in the land package we recently acquired. That's the Mammoth Claims.

We've had an interest in acquiring these claims for at least 20 years. And then at Cliff Creek, which has been known to be a very prospective area, but as it's called, Cliff Creek, it's almost inaccessible. We started mapping this past year but had logistical issues. But we know what we need to do, and we have a contractor who we think is going to be able to do it.

Our focus is not just on expanding high-grade mineralization, but it's also in making new discoveries, new discoveries at Cliff Creek potentially and Mammoth Claims. Now, Greens Creek is a premier silver mine. It's actually the 11th largest in the world. I just want to congratulate the team on delivering excellent and consistent results and giving it a great future because this is truly a world-class asset.

Let's turn to slide 12. If Greens Creek is the foundation of Hecla's future, Lucky Friday is the pillar of near-term growth. The value, consistency, culture, and leadership that Lucky Friday brings makes it our second cornerstone asset. If you put this together with Greens Creek, these two mines make us the largest silver producer in the United States. The mine restarted in early January. As Carlos mentioned, production should be about 5 million ounces.

Cost per ounce should be similar to Greens Creek. Capital will be about $15 million less this year than last year, and that's about the same as what we had in 2022. Despite a 19-year mine plan, we are focusing on the potential to expand the mine to the east at the current elevation. So we're doing drilling and exploration to the east.

Now, there's lots of unknowns, but success could mean more production and lower costs. And with the mine already stabilized, we're starting to work on small improvements to allow higher throughput, like the 5 new cyclones that we're putting in at the mill, which will be installed in June. Now, I'm going to move to slide 13. At Keno Hill, we're struck by two things. First, the ore body is growing with a similar or better quality.

I'm going to take a minute to talk about exploration that makes me say that. I'll do that in a couple of minutes. First, though, I want to talk about the second thing we're struck by, which is the safety and environmental performance that's not met our standard. Fixing them is not an overnight exercise.

Given the long life that we see, we are laser-focused but patient on improving it. On safety, it means changing people's attitudes and habits and, where we can, engineering out risks. So we've taken many of our senior people from our corporate technical team and also at the Lucky Friday and have them rotating site. Basically, what they're doing is mentoring the Keno team.

And then an example of engineering out the risk, we've budgeted a cemented tailings backfill plant for Bermingham to enable it to mine underhand mining, which would be safer than the way we're mining now. For the environmental issues we have at Keno, we're doing studies to make the site meet our standards. One of the things that's come out of these studies is putting in a new water filtration plant at Bermingham, which we'll build this year. That will cost maybe $3-$5 million.

Now, at this point, we're not giving guidance as to when we'll be in production and reporting unit costs. We want to make sure that we have the safety and the environmental issues right without the pressure of having the combined production targets with costs. What I can say is, though, that we think we're going to produce about 3 million ounces of silver.

We expect to spend about $15-$17 million a quarter, and then there'll be $30-$34 million of capital. So 2024, at current prices, should be a small investment year that we do make at Keno. But given the exploration potential in the long mine plan, now is the time to get it right, similar to what happened at Greens Creek almost 40 years ago. And so speaking of Greens Creek, what we've decided to do is to try to create more value by having Greens Creek and Keno try to implement as many synergies as possible.

They're actually only 2 hours apart, and it's a 7-hour drive between the two sites once you get to Skagway, which is a short 40-minute flight. Now, many of the supplies for Keno actually go by Greens Creek to Skagway, and then they get trucked to Keno.

So what we're going to do is we're going to promote Brian Erickson, who's our VP and GM at Greens Creek, and Kim Campbell, our Greens Creek controller, to provide leadership to both operations. Brian, in addition to having had the job as Greens Creek's GM over the last two decades, has led various departments. So he's headed up mining.

He's done surface ops. He's done maintenance. And Kim has led purchasing, warehousing, accounting, and a number of other functions. So we don't know exactly what the synergies will be or what their value will be, and we'll try to outline that over time. But given the maturity of the systems that we have at Greens Creek, this really should accelerate Keno into becoming a strong cash flow-generating mine. So now let me go to the exploration at Keno, and this is on slide 14.

Our drilling programs continue to provide quite remarkable mineralized drill hole intercepts from both underground definition and surface exploration drilling. And I'm only going to talk about Bermingham this morning but realize that there are a series of other targets at Keno, some of which we will drill this next year, that will actually get more drilling or as much drilling as Bermingham will get from surface.

If you look at the plan view that's in the middle of the slide, and it's marked B, B prime, in the upper corners, you'll see that the Bermingham deposit has a number of zones: the Etta, Arctic, Bear, Northeast, and Deep Northeast. And then the small image to the right shows B, B prime going through those zones. And then you can see A, A prime is a cross-section that actually goes through the Bear zone.

If you look at the leftmost image, that's the A, A prime in the upper corners. The Bear Zone has three veins: the main vein, the footwall vein, and the Bear vein. What I want to draw your attention to is the 54 ounces over 39.5 feet that is the transverse vein between the main and the footwall vein.

This is the widest, highest-grade intercept that we're aware of. We had a similar-grade intercept a quarter earlier, just not quite as wide. Looking back at the B, B prime image that's in the middle, there's a red star that is the high-grade mineralization that's more than 1,000 feet deeper than in previous drilling. The longstanding view is that Keno's potential was only in the top 3,400 feet from the surface.

We now have evidence that the high-grade mineralization can be hosted the full depth of the 1-kilometer favorable Basal Quartzite host rock unit. And so these two holes I really think are emblematic of the potential of Keno. Now, turning to Slide 15, last year, we concluded that we could not generate enough margin mining two separate underground deposits in open pit, like I said at the beginning of our remarks.

We just had too many people. We actually had 1,100 people between employees and contractors. And there just wasn't enough value in the rock to operate the mine that way. So we made the decision to simplify the operations by shutting down the underground. And so our team has really very successfully implemented the change. 2024 will have about a half year of underground operations as we mine out the already developed stopes.

Then we'll have only surface tons coming out of the 160 Pit. Then go to slide 16. What this shows is our production costs and capital guidance. Our 2024 silver production guidance shows an increase of about 15%-20% this year, 30% by 2026. Silver cost guidance is slightly higher than 2023. Cash costs are at $3-$3.75, AISC between $13-$14.50. So we still have substantial margin at current and even lower prices and proves that we're really the low-cost leader in the industry. Gold cost guidance is lower. Capital guidance is lower as well, as we've completed and seen the benefits of the major projects such as the service hoist and the ore bunker at the Lucky Friday.

Before I open the call to questions, I want to leave you with the increasing role that silver is playing in solar and the energy transition. And on slide 17, you'll see some of the key numbers that highlight this. 2023 was the 22nd year in a row that renewable capacity set a new record. So it's just continued to grow year after year. And 75% of this renewable capacity in 2023, the additions were solar. Just in the United States, solar capacity has expanded by 44% a year on average since 2009. Now, it takes about 500,000 ounces of silver per gigawatt of solar that's installed. So in 2023, silver demand in solar increased by about 50 million ounces to 190 million ounces. And that's a 12% growth rate in the last 10 years.

So, to put this 50 million ounces in context, that's the equivalent of five new Greens Creeks or 10 new Lucky Fridays. So, not likely to happen that we're going to have production that's going to increase at the same pace that this demand for silver for solar is growing at. So, that means we're going to have to rely upon above-ground silver. And in order to get that, I think you're going to need higher prices to meet that demand. So, with that, Jeannie, I'd like to open the call to questions. So, Jeannie, I'd like to open the call to questions.

Operator (participant)

Again, if you would like to ask a question, press star followed by the number 1 on your telephone keypad. Your first question comes from the line of Lucas Pipes with B. Riley Securities. Your line is open.

Nick Giles (Senior Research Analyst)

Thank you, operator. Good morning, everyone. This is Nick Giles asking a question on behalf of Lucas. Really appreciate the update on Keno here. It sounds like you've already made some nice progress. Is there still any ongoing assessment, or is it now down to purely implementation?

Philips S. Baker (Ex-President and CEO)

Yeah, it's really execution. We're just working through getting people where they need to be when they need to be there. Certainly, one of the things that we've seen is that we have a lot of young, relatively inexperienced people that come from all over Canada. And so that's why having this mentoring, we think, is so important. And it's had real effect. It's been remarkable, the improvements that we've seen over the course of the last few months. But having said that, we want to be cautious that we're not pushing the organization faster than it's really capable of moving safely.

Nick Giles (Senior Research Analyst)

That's it. Thanks for that. Nice to hear the synergies with Greens Creek as well. Can appreciate you're not.

Philips S. Baker (Ex-President and CEO)

Yeah, I'm really excited about the potential for the synergies. I mean, one of the things is some back-office things that Kim is responsible for. Brian certainly brings a load of experience, and the mining methods are similar. Equipment is a bit different because it's larger at Greens Creek. But I mean, one of the things we're even thinking about is doing rebuilds. We do them in Juneau for Greens Creek. Maybe we'll also do them for Keno in Juneau.

Nick Giles (Senior Research Analyst)

Got it. Got it. That's great to hear. I can appreciate you're not ready to give guidance like you outlined. But safe to say it's kind of a second-half event before we see anything or any color you could give around timing, just rough estimates?

Philips S. Baker (Ex-President and CEO)

Look, I'm not going to it. It will be as fast as we think we can do it safely and have a stabilized organization there. As we indicated when we made the change, we had, fortunately, no incidents that resulted in injury, major significant injury. But we had the potential for that, and we're just not going to take a risk.

Nick Giles (Senior Research Analyst)

Got it. Got it. Well, I appreciate the color here. I'll go ahead and jump back in the queue, but continue best of luck.

Philips S. Baker (Ex-President and CEO)

Thank you.

Operator (participant)

Your next question comes from the line of Joseph Reagor with Roth MKM. Your line is open.

Joseph Reagor (Managing Director, Senior Research Analyst)

Hey, Phil and team. Thanks for taking my questions. On Keno Hill, as you look at the guide you gave this year versus the guide that was given at the beginning of last year, what do you think is the biggest dilemma for why there isn't as big of an increase as we might have anticipated for the mine this year? Is it not getting enough workers aside? Is it still underground development being behind schedule? Is it mine sequencing? How do you think about that? And then what do you guys think are the biggest things you need to do in the future to kind of get it to where you want it to be?

Philips S. Baker (Ex-President and CEO)

Yeah. I mean, look, I think there's an element of caution here, Joe, that we want to make sure, as I said, that we're not pushing the organization too fast. I think what we didn't appreciate was the ability of the organization to deal in a systematic way with issues that arose. And we're getting those systems in place to be able to do that.

Yeah, I think it will take a little bit of time, but I'm highly confident that over the course of the coming year, that we'll get there. Number one, we've taken our most senior, experienced people in our organization, and they're spending time. Hence, why Carlos is there at site with this reorganization, with Brian heading up the activities at both of these operations, Greens Creek and Keno, that we'll have that leadership. And the leadership will be close by.

So I think it puts us on a good path to see the improvements. Technically, it's not. There's challenges, but technically, they're all manageable sorts of challenges. Carlos, is there anything you would like to add?

Carlos Aguiar (SEVP, COO)

Well, it's just the mentoring and the training and trying to hire the most adequate people, retain, train, promote, and build the team in the proper way.

Joseph Reagor (Managing Director, Senior Research Analyst)

Okay. And then shifting over to Casa, looking at the long-term plan, do you guys have, off the top of your head, the after-tax IRR for that expansion project?

Philips S. Baker (Ex-President and CEO)

Yeah. When we put the technical report together, it'll be filed with our 10-K. We actually didn't calculate an IRR just because we're kind of mid-project here in terms of Casa. Casa is interesting because we're going to put a little bit of investment in this year. We should see some nice cash flows over the next few years, then a pause, and then an investment. So we actually didn't calculate the IRR. But what we did do is calculate the discounted cash flows of it. We're laughing, Joe, because one of our directors asked the same question.

Joseph Reagor (Managing Director, Senior Research Analyst)

Well, the reason I ask is a general rule of thumb. If it was not an operating asset, a CapEx that exceeds the NPV after-tax would suggest the IRR is in the 25% or lower range. I was just wondering if there's any risk at all that you guys decide that there's a better use of capital than that.

Philips S. Baker (Ex-President and CEO)

I guess the first thing I'd say is that the investment that's going to end up happening there is really just the stripping from the pits that will happen in 2028, 2029. So it's a relatively and we'll have much of the equipment already in hand. So there's very little equipment that needs to be purchased relative to just the cost of moving the rock. We have a place to store that waste rock. So I think that we certainly, we can do the math to figure out what that would once we have very good cash flow between now and that pause time when we're doing that stripping.

Russell Lawlar (SVP and CFO)

Yeah. And the other thing, you'll see this in the technical report, but the payback on those pits, the Principal Pit and the West Mine Crown Pillar Pit, comes very, very quickly, nearly 2030s. So that investment period of 2028, 2029 and then a little bit into 2030 gets paid back quickly in 2031, 2032, etc. So yeah, and that speaks to what Phil just said in terms of us already today, we're investing in the surface fleet, etc., setting ourselves up for this mine for the long run.

Joseph Reagor (Managing Director, Senior Research Analyst)

Okay. And one final thing, if I could. I saw an article a couple of weeks ago. Phil, I believe you made the comment that you guys are looking at South America as an opportunity to maybe expand the company and the production profile. Is this something that's a long-term thought, or is there any potential to do M&A in the next year or two?

Philips S. Baker (Ex-President and CEO)

Well, there's always the potential, Joe, to do it. And what we have said consistently is we are prepared to go outside the United States and Canada for silver assets. We won't do that for gold or any other metal, but we will consider it for silver. Having said that, the ability to do those transactions are difficult. And so we're not going to, we don't have to push it. We're fortunate in that we have growth in the near term.

We should get to close to 20 million ounces by 2026. We have in our portfolio, we actually have to include the operating properties. We have 20 properties in our portfolio, half of which are silver assets, half of which are gold assets. And we'd like to advance those. Some of them are sort of in the permitting process. Some we need to do more exploration on.

But we do have the ability to do things within our portfolio. But having said that, our long-term objective is to be really the premier silver company, which means more production, as well as become and this is a super long-term goal, but as well as become an S&P 500 company. And we think with more production and higher prices, which were, as I indicated, why we think we'll see higher prices, we think that that's something that could be achieved in the long term.

Joseph Reagor (Managing Director, Senior Research Analyst)

Okay. Thanks for the color. I'll turn it over.

Philips S. Baker (Ex-President and CEO)

Sure thing.

Operator (participant)

Your next question comes from the line of Don DeMarco with National Bank Financial. Your line is open.

Don DeMarco (Precious Metals Equity Research Analyst)

Thank you, operator, and good morning, Phil. My first question, maybe just building on the last caller's question about M&A, we've seen with regard to pursuing silver assets, we've seen some of your peers challenged to add silver assets or diversifying into gold. I think I heard from you that you're still your priority silver. You wouldn't certainly go for gold outside of North America. But would you consider gold assets, or are you still firmly focused in any M&A, if it met all your hurdles, primarily focused on silver?

Philips S. Baker (Ex-President and CEO)

We're absolutely primarily focused on silver. We will, however, consider gold and maybe even other metals that are in the jurisdictions, in the places that we operate. So we're in Alaska. We're in Yukon. We're in Idaho. We're in the Abitibi, Quebec. And I would characterize just across the border geologically as being the same. So would we consider things other than silver in those places? The answer is yes. Is it our first priority? No, but we certainly think you saw the ATAC transaction that we did in the Yukon. We think that it was a strategic acquisition that really sets up Hecla for very long-term potential of things that could be very, very meaningful. So we're prepared to consider those things.

Don DeMarco (Precious Metals Equity Research Analyst)

Okay. Yeah, it makes sense, looking at potential jurisdiction synergies. Okay. Looking at the production outlook, we see that silver production is increasing over the next three years. We see 20 million ounces at the high end of the range in a few years. Costs weren't included. We get that. But how should we think about costs over this timeframe? Should we think about costs as increasing or flat, or is there any just kind of for the sake of modeling, what trends we should think about?

Philips S. Baker (Ex-President and CEO)

I would generally say that you'll have some inflationary pressure, so you'll see costs increase as a result of that. I'm going to talk about it first in terms of the total quantum of costs rather than on a unit basis. You'll see some slight increases, but nothing at Greens Creek and the Lucky Friday. I'm not anticipating any sort of significant sort of cost increase.

And at Keno, it's in a transitional it'll be in a transitional period. I think Keno will the objective we will probably have long-term, given the exploration results we have, is to see that property increase its throughput. We, in fact, in the technical report, have an assumption that we get to, I think, 550 tons or 600 short tons per day in sort of three or four years from now.

So as a result, you'll see more dollars needing to be spent at that location. But then when you look at it on a unit basis, for Greens Creek and the Lucky Friday, it's really going to be a function of the byproducts and the prices of those byproducts. To the extent we're at the similar sort of price levels that we are now, I wouldn't anticipate much of a change. For Keno, I think over time, we will be able to drive the costs down pretty substantially, but it's going to take more tons. And I think trying to get some of these synergies with Greens Creek, I think, could be a benefit to both properties. Anything to add, Russell?

Russell Lawlar (SVP and CFO)

I agree with what you've said. There's really nothing that we have coming at us that we would say we could point to that would say, "This is going to change our cost profile dramatically," especially at the Lucky Friday in the Greens Creek. And I'm thinking about it from the kind of just as-produced production costs, the costs we're going to spend on a monthly or yearly basis. Keno Hill's cost structure has quite a bit of fixed costs within it.

And so as we are able to scale that up and see more throughput, there will be additional variable costs, but we should see on a per-unit basis, those should come off. And then Phil mentioned the treatment or the byproduct credits, but we also have the treatment charges in there as well. Right now, I think the outlook for the treatment charges should be relatively stable, but we'll see, those things can fluctuate and actually have an impact on our cost profile as well.

Philips S. Baker (Ex-President and CEO)

Yeah, pretty dramatic to move them in Treatment Charges over time.

Don DeMarco (Precious Metals Equity Research Analyst)

Okay. And just as a final question, Phil, you mentioned Keno Hill there ramping up to a throughput rate of around 550 short tons per year. And what should we think about? You see 2024 production at 2.7-3 million ounces silver. And should we pair up in terms of the throughput rate for that? Rather, that's 550 tons per day, I would imagine. So what should we think about in terms of tons per day in 2024?

Philips S. Baker (Ex-President and CEO)

That's certainly what we're still working through because we do have higher-grade areas. But generally speaking, somewhere between 3 and 400 tons per day. But again, we're not going to push it. But if we're at the lower end of the range of ounces, then we're at the lower end of the tons per day. If we're at the higher end of the range, then it's just more tons that we've been able to process, so between 3 and 400 tons.

Don DeMarco (Precious Metals Equity Research Analyst)

Okay. Thank you very much for your answers. That's all from me, and good luck with the rest of the quarter.

Philips S. Baker (Ex-President and CEO)

Thank you.

Operator (participant)

Again, if you would like to ask a question, press star, followed by the number 1 on your telephone keypad. Your next question comes from the line of John Tumazos with John Tumazos Very Independent Research. Your line is open.

John Tumazos (Senior Research Analyst)

Thank you. Was the $21 million inventory adjustment solely related to falling zinc prices and zinc concentrates in transit?

Philips S. Baker (Ex-President and CEO)

John, I think the short answer to that is it's the Lucky Friday.

John Tumazos (Senior Research Analyst)

So John, you're looking at the cash flow statement, correct? The non-cash, the add-back. Correct. On the cash flow?

Philips S. Baker (Ex-President and CEO)

Yeah, that's a couple of things. First, that's related to Casa Berardi, I would say, is the largest part of it, where the cost per ounce, especially when you take into account the non-cash charges, the depreciation that goes into the inventory, there was a net realizable value write-down there. And that was accelerated because when we stopped development of some new resources or new reserves at the West Mine Underground, we accelerated depreciation because we anticipate that will mine out mid-2024. So we see the non-cash charges at Casa Berardi have gone up. And I think that detail if you go into the 10-K, you'll see that detail as the non-cash charges have gone up. So that's the biggest driver of that.

There is then some changes as well at Greens Creek where you ship concentrate, and you have to true up estimates of what the inventory is that you have in the concentrate barn. So those will flow through there as well, but it's primarily Casa. What I would say is you mentioned the change in the price of zinc, and we have seen the change in the price of zinc has come off. A couple of things, though. If you look at the realized price of zinc, it's actually pretty healthy because we had hedges in place that caused us to not have to take that lower price, right? So it's above $1.30 for the quarter. But also, even at $1 or $1.10 zinc, both Greens Creek and Lucky Friday have strong positive margins. So there's really no NRV write-downs at either of those mines.

John Tumazos (Senior Research Analyst)

Second question, if I may. The $76 million in idle facilities cost, does that largely disappear after the January restart at Lucky Friday and then, say, mid-year when Keno Hill starts to produce revenue?

Philips S. Baker (Ex-President and CEO)

Short answer is yes. Yeah, that's correct. In 2023, it was primarily driven by Lucky Friday. And then also, there's a chunk of it that was Keno Hill as well, right, that's ramped up at Keno Hill where we essentially have our cost of goods sold match our revenue, and then the rest of the costs go through that. So as we see Keno Hill produce more, that should shrink as well. And a little bit yeah, a little bit of Casa and some of Nevada is in there as well.

Russell Lawlar (SVP and CFO)

Yeah, remember Casa, we had the fire in Quebec that caused this to have to be shut down.

John Tumazos (Senior Research Analyst)

Thank you very much.

Philips S. Baker (Ex-President and CEO)

Thanks, John.

Operator (participant)

Your next question comes from the line of Lucas Pipes with B. Riley Securities, your line is open.

Nick Giles (Senior Research Analyst)

Hey, thanks, operator. This is Nick Giles again on behalf of Lucas. Could you provide any color around the cadence of insurance payments throughout the year? I know first proceeds were here in February. Then how should we think about timing as far as paying down the revolver? Is paying that down contingent upon receiving these payments?

Philips S. Baker (Ex-President and CEO)

Well, Nick, this is an insurance company, so I'm not going to render a guess as to when they'll actually pay us. But they actually have been very good, and they did make a payment just a couple of days ago. But what they have said is that they would anticipate during the course of the year, so just sometime over the course. As far as paying down the revolver, it'll be a function of both that and the cash flow from our operations. So ideally, as we build up cash position, we'll pay it down.

Nick Giles (Senior Research Analyst)

Got it. Got it. Okay. Well, fair enough. Appreciate the color. Best of luck.

Philips S. Baker (Ex-President and CEO)

Thanks. Thanks, Nick.

Operator (participant)

There are no further questions at this time. I will now turn the call back over to Phil Baker, CEO, for closing remarks.

Philips S. Baker (Ex-President and CEO)

Okay. Well, thanks, everyone, for participating in the call. I'll remind you that we have the opportunity, if you'd like to have a one-on-one meeting with us, you can schedule one with us in the next hour or two. And if that doesn't work, then please feel free to reach out to Anvita, and we'll be happy to schedule you at a different time. Just appreciate the interest, and I definitely think that we're in a place with silver that we've not been before, and that we're going to keep banging that drum to try to get people to realize what's happening in the silver space with the growth in solar. So thanks so much, and I'll talk soon.

Operator (participant)

This concludes today's call. You may now disconnect.